When a ‘minor’ issue can become a Major Problem.

One of the primary concerns for families with minor children have with regard to their estate planning is the care, both personal and financial, of the minor children if both parents predecease the child before he or she reaches the age of majority. The appointment of a guardian (typically a relative or close friend) provides a level of comfort for parents who wish to be certain of who will take of their children if they are no longer around.

Relying on a guardianship appointment alone may not sufficiently protect your child from certain financial problems that are common with children who receive large sums of money at an early age. In New York, a child reaches the age of majority at 18. Unless the child consents to the continuation or appointment of a guardian, all monies and property held for their benefit must be released to them directly. In rare circumstances, a child can petition the Surrogate’s Court prior to reaching 18 if the appointed guardian is not fulfilling his or her responsibilities or the court finds guardianship to not be in the child’s best interest.

It is rare to find an 18 year old with sufficient financial maturity to handle the administration, investment and maintenance of large sums of money. It is for this reason that I strongly advocate establishing trusts for children under both last will and testaments and under lifetime trusts. The benefits are substantial and clear: first, by continuing to have a fiduciary (rather than the child) as the responsible party for the assets, the value of the assets have a reduced chance of being wasted or used for frivolous or harmful purposes.   Second, by retaining the assets in a trust and not in a child’s name, the assets can be shielded from potential creditors of the child.

Finally, using a trust gives the donor of the assets-the testator under a will or a grantor of a trust-the ability to structure the distributions and usage of the assets to best accommodate their wishes and the needs of the children beneficiaries. The donor is typically a parent or close relative and may have a better understanding of a child’s strengths and weaknesses when it comes to managing money.

There is no perfect solution that ensures that assets being inherited by or gifted to a child will not ultimately be wasted or abused. However, by relying on your own knowledge of a child rather than arbitrary deadlines, the chances of seeing the assets used for the intended purposes greatly increases.

 

Please contact info@levyestatelaw.com for more information.

A Declaration of Interdependence

Last Monday, we celebrated the 240th anniversary of the signing of the Declaration of Independence, the document by which the United States of America was born.  By recognizing the need to break free from the control of England, the former colonists put forth the belief that only by gaining independence could they gain the unalienable rights of “Life, Liberty and the Pursuit of Happiness.”

Nearly two and half centuries later, the world has changed dramatically, but the desire for independence and the ability to chart our own course remain key values to Americans. Running parallel to this need for freedom is our history of finding great success by relying upon each other.  The motto “E Pluribus Unim” (out of many, one) reflects that this is also a core American value.

When preparing an estate plan, it is understandable to want to rely on one person or one advisor to ensure all your wishes and desires are fulfilled.  However, in most cases, it is preferable and useful to have multiple advisors across multiple professions working with you to provide you and your family with the security you wish for.  By working together, attorneys, accountants, financial and wealth advisors and other professionals can bring their specific expertise to the table and strengthen the other advisors’ abilities to help a client reach their goals.

Family members and friends also play a part in ensuring your estate plan fulfills its goals. In their capacities as fiduciaries or beneficiaries, these most important individuals can assist both the individual and their advisors during their lifetime and beyond.  Conversely, a disgruntled family member can cause great harm to the success of an estate plan.

In the end, each individual’s estate plan should reflect their specific wishes and intentions.  It is each individual’s right to plan their affairs as they see fit.  Utilizing the people and resources available to you is best way to achieve this goal.

For more information, please contact info@levyestatelaw.com.

The Perils of Procrastinating: Six Ways Delaying Your Estate Planning Can Harm You, Your Assets and Your Family

Procrastinating is a typical and normal response to having to deal difficult and uncomfortable tasks and situations. Everyone would prefer to delay dealing with the hard decisions related to setting up an estate plan. But, for far too many people, what begins as procrastination turns into inaction. Since no one can accurately predict when any part of an estate plan will need to be utilized, this inaction can have irreparable and unwanted harm on an individual, his or her assets and their family.

Without an estate plan in place, many decisions that should have been made by an individual are left to a series of statutes and rules related to the laws of intestacy. These laws and rules dictate how a person’s estate will be managed and administered if they did not leave a properly executed will or other testamentary device when they die. While those who have an estate plan will be able to make these choices, those without will have numerous choices made for them:

Who will benefit from your estate? The laws of intestacy determine who will benefit from your estate based on a specific line of familial succession. If you are married without children, your spouse receives everything.   If you are married with children, the surviving spouse and the children split the estate 50-50.   If no children or spouse are living, the line of succession continues down all the way to first cousins once removed if no previous class of relative is alive.

This poses several potential problems. First, the statutes do not differentiate minor children from adults, leaving a potential situation where a minor child will receive potentially large sums of money. How this money is held and the level of court control over this money becomes an issue as well (more on that later).

Second, for more complicated family structures, the statutes pose significant problems.   Children born of wedlock or adopted children may face the need to prove their relationship with a deceased parent in court. Non-blood relatives who might have benefited from the deceased individual’s estate are not considered.

Finally, since New York does not recognize the concept of common law marriage, a non-married partner will be left out of the inheritance even if they had children with the deceased. It is especially important for persons in non-traditional relationships to have their wishes outlined in an estate plan if they wish to benefit persons other than their blood relatives.

Who will administer your estate? Without a will or other testamentary device, the Surrogate’s Court will look to the intestacy order of succession to determine who will be appointed the administrator of the estate. In addition to taking this decisions out of an individual’s hands, the lack of a clear choice to administer the estate may lead to higher costs, a longer administration and potential litigation from unhappy beneficiaries.

Who will care for your minor children? In the rare instances where both parents die with minor children, a will or other testamentary instrument will typically nominate person to serve as the guardian for any minor children. Without a will, the friends and relatives of the deceased may petition the court for the right to care for the children. It is then up to the judge to decide, based on his or her opinion, who the most qualified person is. The judge’s criteria may differ sharply from the parents’ criteria for choosing a guardian.

How will the assets of the estate be held and what involvement will the court have with the administration of the assets? It is often advisable to utilize one or more trusts under a will as the receptacle for the assets passing out of the estate. Asset protection, tax savings and avoidance of waste are common reasons why using trusts are preferred over outright bequests. A court is unlikely to create a trust for an individual who does not have a will or testamentary instrument. This failure to plan may expose assets to risks that a trust could easily avoid.

In addition, if a minor is a beneficiary of an estate, the court and their guardian will oversee their share of the estate until the minor reaches eighteen.   The guardian will be required to petition the court for any distributions that a child may need and requests for distributions are not automatically granted.

How can I avoid, delay or reduce estate, gift and generation skipping transfer taxes? Beyond using an individual’s state and federal exemptions, coupled with the marital deduction if an individual is married at the time of their death, failure to have an estate plan in place will almost completely foreclose any tax planning for an estate’s assets.   Post-mortem (after death) planning is an available option, but it may not be as effective as proactive planning.

Who will make decisions related to finances and medical care if I am unable to? The previous questions related to what happens after someone dies, but issues related to incapacity and disability are equally important.   Along with a will, a durable power of attorney, health care proxy and living will are essential components of an estate plan. Without theses documents, decisions related to finances and medical decisions may not be made by the correct person or may require court intervention to authorize. In a worst-case scenario, a dispute may arise amongst family members about these decisions that could devolve into litigation.

It is impossible to predict when and how you will need to utilize an estate plan. However, for most people, it is clear that making the decisions that will affect themselves, their families and their assets is preferable than leaving these decisions to others.

Please contact info@levyestatelaw.com

Frequently Asked Questions-Part One

In my years counseling clients, I have found that each client, couple or family who comes to me have their own unique situations to plan for. But while their situations are unique, the questions that they ask tend to be very similar. Below are some of the most common questions I get and some general answers to those questions.   Later this week, I will post some additional questions and answers:

1) Why do I need to use an attorney? Can I draft my will/estate plan myself? The proliferation of products like Legal Zoom have encouraged do-it-yourselfers to consider drafting their own estate plans with little to no advice from an attorney. In some situations, a “simple will” may be all you need and the harm in using self-preparation software is minimal. However, for most individuals, a simple will does not reflect their complicated lives. Moreover, while Legal Zoom does provide some legal counsel, the professionals they use are likely less dedicated to the do-it-yourselfers than their own clients.

2) Who should I select as my fiduciaries (executors, trustees, guardians)? Can they be the same people? The main criteria for selecting a fiduciary is whether you believe a person is qualified to handle the tasks they are appointed to do.   You may have family or friends who may handle financial situations well, but would struggle in the role as a guardian. There may be individuals whose current life situation is simply too complicated to serve in any capacity while others could handle all roles in a manner that you find appropriate. In the end, your fiduciaries should reflect your values and beliefs in how each role should be handled.

3) Why should I leave property to my children (or other minors) in trust and not outright? Under New York law, any account beneficially owned by a child must be paid to that child by the time they reach age twenty-one (21). For many children, this is a very early age to be given such a large financial responsibility.   The use of a trust for a child can extend the period of time when the property earmarked for that child can be held and managed by another individual (the trustee).

4) I was told that life insurance was tax free, but recently learned that life insurance proceeds are included in my taxable estate. Is there a way to avoid having these proceeds subject to estate tax? By using a vehicle known as an irrevocable life insurance trust (ILIT for short), life insurance proceeds can be removed from an individual’s taxable estate for both federal and New York estate tax purposes. The inclusion of these proceeds in a taxable estate can increase or even create an estate tax liability where none would exist otherwise.   The creation and administration of an ILIT does require additional time and money, but if properly administered, the benefits far exceeds the cost.

5) My parents have all of their assets in a revocable living trust and recommended I do the same. Is it true that this trust can help me avoid probate? If funded and administered properly, a revocable living trust can help avoid the costs and delays associated with probate and estate administration. However, for many individuals, an estate administration proceeding may be necessary even with a revocable living trust. Oftentimes, assets will not be properly transferred into a revocable trust before a person dies. In these situations, a short ‘pour over will’ will typically transfer the remaining assets into the trust following an estate administration proceeding.

For more information, please contact info@levyestatelaw.com

 

Doing It For Your Kids: Key Estate Planning Decisions For Families with Minor Children

Preparing an estate plan at a young age comes with a series of unique and often difficult decisions for an individual, couple or family to make with regard to how their planning will be structured.   One of the primary difficulties comes from having to think about the care of their children in the event that both parents die before the children reach adulthood. This often holds people back from starting their planning, leaving their assets and their families unprotected from this unlikely-but not impossible-scenario.

To properly protect your minor children, an estate plan is a necessity. A properly drafted estate plan will outline certain key decisions that must be made to ensure that the family’s children are properly cared for. Amongst those decisions to be made are the following, namely:

How will property for the children be held-Money and other property that is held for the benefit of a minor child can be held in several different manners, each with a varying level of protection.   Parents or other relatives can set up custodial accounts for their minor children, which will protect the funds for the children they are set up for until the child reaches an appropriate age. In New York, custodial accounts must be paid out to the beneficiary of the account at age 21.

In some instances, a custodial account is insufficient or inappropriate. If the creator of the account is older, he or she may pass away without naming a successor custodian. A petition would have to be filed by another individual to gain control of the custodial account. Alternatively, the amount being held for a child may be large enough that allowing the child full access to the funds at 21 may not be wanted.   In such instances, the use of a trust can extend the period of time that the funds or property is not directly controlled by a child.

Who will control the property for your children-Careful consideration must be made to determine the persons who will control property for the benefit of a minor child. Factors such as the competence, financial knowledge and temperament should be considered in selecting executors (responsible for a person’s estate), trustees (responsible for managing trust assets) and custodians (responsible for holding custodial accounts. In addition, an individual’s relationship with the child beneficiaries and understanding of your wishes with regard to distributions should be given consideration as well.

Who will care for your children-The decision of who to select as a guardian for your children is often fraught with emotion, fear and jealousy on the part of both parents and the persons considered for this important position. However, the key factor must be who will best care for your children.   You should consider not only how well you get along with the chosen guardian, but also how well the children get along with the selected individual(s). If a person has a large family themselves, the prospect of adding one or more children may be more than they can reasonably be expected to handle regardless of how close they are to the parents of the children. Finally, how seamlessly a guardian can take over responsibility for a child should be factored into making your final decision.

How will their education be paid for-College expenses and other educational costs should be a factor in determining how best to plan your estate. The use of savings vehicles such as a 529 plan or crummey trust can help establish a funding mechanism for education at a very young age.   Life insurance can also be a helpful tool either by purchasing permanent coverage with a cash value or by carrying sufficient term life insurance to cover expected expenses.

The benefit to making these crucial decisions early on is that once an initial plan is put in place, it can be modified and changed as your children grow older to meet their changing needs. Being prepared also can be a powerful way to reduce parental anxiety about their children’s future by ensuring that their children will be protected financially and cared for even after they are gone.

 

Please contact info@levyestatelaw.com for more information about estate planning.

An Englishman (Or Other International Citizen) In New York: An Introduction to International Estate Planning

New York is an international city in every sense of the term.  Every year, people from every corner of the world come to New York to work and live.  While some return to their home countries in short order, others stay for longer periods of time while others decide to make this their permanent home.

Once an international citizen decides to live here on a long-term basis or if they purchase significant assets in the United States, it becomes important to determine how their property would pass if they die.  In order to determine this, it is important to first understand what their legal status is in the United States.

There are three classifications that international citizens are grouped in for estate planning purposes.  A non-US citizen who considers the United States their permanent residence is considered a resident alien.  On the other hand, if the non-citizen is here temporarily or maintains a permanent residence outside the Unite Status, they are considered non-resident aliens.  A final classification to consider is persons who hold one or more additional citizenships beyond US citizens.  For each of these classifications, unique issues arise as it relates to estate planning, namely:

Estate Administration

Property is primarily administered by the jurisdiction where the decedent was domiciled.  For resident aliens, this means that their estates would be administered where they lived when they passed away.  The main exception to this rule is for real and personal property, which must be administered in the jurisdiction where it is located. For non-resident aliens, as well as other individuals owning property outside of their domicile, the estate administration process becomes complicated by the involvement of multiple jurisdictions and the need for additional proceedings known as ancillary estate administration. For this reason, persons who own property in multiple jurisdictions and non-resident aliens often utilize trusts and entities like limited partnerships and LLCS to avoid ancillary probate.

Estate Taxes

The status as a resident alien versus a non-resident alien can have significant estate tax implications.  Resident aliens retain the current $5.25 million federal estate tax exemption while non-resident aliens can only exempt $60,000 from estate taxes.  While the types of property that are included in a non-resident alien’s estate are limited, owners of significant real and personal property may be subject to a significant tax bill if they do not plan properly.

For both resident and non-resident aliens, the standard marital deduction is limited.  In order to qualify for this deduction, property passing to any non-US citizen must pass into a special type of marital trust called a qualified domestic trust (“QDOT”).  The beneficiary of a QDOT receives income free of estate tax, but any principal that is distributed will potentially be taxed.  In addition, a QDOT must have a US citizen as trustee at all times.

Individuals with multiple citizenships must also be aware of how each of the countries in which they claim citizenship tax assets at death.  Many countries have estate tax treaties with the United States to prevent individuals from being taxed by multiple jurisdictions.  For countries without estate tax treaties, it is important to understand which assets and which individuals are subject to their tax system.

Guardianship

Selecting a guardian to serve if both parents die is never an easy process.  For non-citizens, the process becomes more complicated by the potential lack of suitable options domestically.  The question becomes even more difficult if the child is an US citizen.

To ensure that their children are cared for as they choose, non-citizens must be explicit in terms of where they wish for their children to live and whom they wish to be their guardian.  If they wish for their children to leave the US, they may wish to speak with an immigration attorney to ensure their citizenship is preserved.  In addition, they should consider a ‘temporary’ or transitory guardian who is a US resident or citizen to assist with the appointment process.

The opportunities for international citizens in New York and in the United States will continue to attract the world’s best and brightest.  Proper estate planning, with focus on both local and foreign issues, ensures that their stays here will not be compromised by their unique issues.

Please contact info@levyestatelaw.com for more information about international and multi-jurisdiction estate planning.

Five Reasons Why You Should NOT Have An Estate Plan

You may be wondering why I would ever consider writing a post about not having an estate plan.  As an estate planning attorney, it might seem counterintuitive for me to discuss the reasons why an estate plan isn’t a necessary component of every adult’s life planning.

The reality is the reasons listed below come not from me, but from conversations I have had with people who do not have estate plans.  People of all ages, levels of wealth and familial situations have used one or more of these reasons to explain their reluctance or unwillingness to prepare an estate plan.  And with more than 60% of adults in the United States lacking even a basic will, it’s more likely than not that a relative, friend or colleague of yours has relied one of these reasons.

Reason Number One: Insufficient Assets.  One of the key goals of any estate plan is to delay, minimize or eliminate any estate taxes on the assets passing from an individual to his or her heirs.  Without sufficient assets, this component of an estate plan is unnecessary.

BUT, for individuals living in New York, New Jersey and Connecticut, having sufficient assets to require tax planning is more common than in other parts of the country.  First, individual income and personal wealth are higher in the tri-state area than in many other parts of the United States.  Second, the estate tax exemptions in Connecticut  ($2,000,000), New Jersey ($675,000) and New York ($1,000,000) are amongst the lowest in the US (many states do not have a state estate tax).  When you consider the real estate values in the tri-state area and the fact that life insurance death benefits are included in a taxable estate, it is very easy for an estate to surpass the state exemptions.

This does not even factor in the possibility that in 2013, the federal estate tax exemption will drop to $1,000,000.  This would expose many individuals to both federal and states estate taxes.

Reason Number Two: Estate Planning is Expensive.  Compared to many forms of planning, the upfront costs of preparing a good estate plan may seem expensive.

BUT, unlike other forms of planning, the fees for estate planning are not re-occurring unless your plan needs to be changed.  Additionally, while many of the larger law firms may charge fees that are uneconomical for many, there are numerous high quality boutique law firms and solo practitioners in the tri-state area who can provide a comparable service for a fraction of the cost.

Reason Number Three: I’m Too Young To Need An Estate Plan.  Fortunately, the likelihood of a premature death is small for most Americans.  For parents with minor children, the chances that both parents will pass before a child reaches 18 is very remote.

BUT, just because something is unlikely or an event is remote does not mean it is impossible.  The care of a minor child is not something most parents want to leave to chance.  And while there may be relatives or friends willing to step in and care for a minor child, not having a guardian named is a risk not worth taking.

Reason Four: I Can Rely on the State Intestacy Statute to pass my property to my heirs.  It is true that every person has a fallback estate plan regardless of whether they prepare any documents on their own.  New York, like all states, has a statute known as the intestacy statute which governs who will inherit your property and who will be able to manage your property if you die without a will.

BUT, the distribution pattern laid out by the New York intestacy statute is not necessarily what you would want.  For example, if a spouse and children survive an individual, the spouse will receive only fifty percent of the estate with the remainder passing to his or her children.  There are no provisions to reduce estate taxes, protect assets from waste or select your own representatives by utilizing this statute.  Furthermore, from a purely ideological perspective, there are very few people who would prefer such intimate decisions to be made by the government rather than by themselves.

Reason Five: Mortality Fears.  An unfortunate consequence of preparing an estate plan is the necessity to think about death and severe illness.  In many cases, this fear trumps all the previous reasons for stopping individuals from preparing an estate plan.

There is no BUT attached to this reason as because mortality fears are very real and deserve proper consideration.  In my experience, for many of my clients, preparing an estate plan allows an individual a sense of piece of mind from the fact that their affairs will be handled properly if they die.  Furthermore, preparing an estate plan reduces the stress and complications that your family will have to deal with in the aftermath of an already traumatic event.

And in the end, for all the reasons not to prepare an estate plan, the ability to protect your family from those stresses and complications remains the best counter-argument for estate planning.

Please contact info@levyestatelaw.com for more information about estate planning.